It is commonly known that minors cannot own property or validly execute contracts. So what happens if a grandparent wants to gift a significant sum of money to a grandchild? Or perhaps a parent wants her child, who is a minor, to benefit from the proceeds of a life insurance policy on the parent's life? One possibility is to place the property into a Trust, which would allow a trustee to manage and hold the property for the benefit of the minor. However, what if creating a Trust was not an option? This is where the Hawaii Uniform Transfers to Minors Act comes into play. The Hawaii Uniform Transfers to Minors Act was enacted in 1985 and is codified in Hawaii Revised Statutes Chapter 553A.
Naming a custodian. The basic objective of the Hawaii Uniform Transfers to Minors Act is to allow a custodian to control and manage property on the minor's behalf until the minor reaches a certain age. At that point, the minor may legally take control of the property.
Scope of the Uniform Transfer to Minors Act. According to Hawaii Revised Statutes Section 553A-2, if the transferor, minor or custodian is a resident of Hawaii or if the custodial property is located in Hawaii, then the Hawaii Uniform Transfers to Minors Act will govern. Consequently, the custodian is subject to the jurisdiction of Hawaii courts regarding any custodianship matters.
Naming or nominating a custodian. A person may be nominated to act as a custodian via a Will, Trust, deed or an instrument exercising a power of appointment. Multiple successor or substitute custodians should be nominated in the event the initial nominated custodian cannot act. The appointment or nomination of the custodian should be in the following form:
"[name of the proposed custodian] as custodian for
[name of minor] under the Hawaii Uniform Transfers to Minors Act."
Using the Hawaii Uniform Transfer of Minors Act. So when should a person name a custodian for a minor? The answer is anytime there is a possibility a minor may have the opportunity to own or receive property in their individual name. For instance, a minor should never be individually named as a beneficiary of a life insurance policy since the insurance company cannot legally release any proceeds to the minor.
Ramifications of not naming a custodian. If a minor is somehow entitled to property and a custodian has not been named or nominated, then an attorney will have to petition the court to have a conservator appointed to take control of the property for the minor. A conservatorship will provide court oversight for the property, but obtaining a conservatorship will require additional expense and hinder the ability of an adult to take immediate control of the property.
Termination of custodianship. A custodianship will terminate at different times depending on how the property was transferred to the custodian. If a Will or Trust authorizes a custodian to take control of property for the benefit of a minor, then the custodian must hand over the property once the minor reaches 21 years of age. However, if a Will or Trust merely names the individual minor as a beneficiary and does not authorize a custodian to take control of the property for the minor, then the personal representative or trustee may transfer the property to a custodian, but the custodian must transfer the property the minor once the minor reaches 18 years of age.
Accounting. According to Hawaii Revised Statutes Section 553A-19, a minor who is at least 14 years old, the minor's guardian or legal representative, an adult member of the minor's family or a transferor may petition the court for an accounting by the custodian or the custodian's legal representative. A successor custodian may also petition the court for an accounting by prior custodian.
Lack of control. One of the drawbacks of using the Hawaii Uniform Transfer to Minors Act is that the custodian is mandated under Hawaii Revised Statutes Section 553A-20 to release the property to the minor when the minor attains a certain age. At 18 or 21, the minor may lack the maturity or financial skills to properly manage property. Therefore, if a transferror is concerned about a minor possibly handling property at those ages and wish to delay the transfer to a later time, using a Trust should be a primary option. Through a Trust, the transferror would be able to dictate when and how much the minor will take of the property.
Cost efficient. An advantage of naming a custodian is that it costs very little to nominate or name a person to act as custodian. While creating a Trust is the preferable way of transferring property to minor, if a person does not have the financial means to hire an attorney to create a Trust, naming a custodian under the Hawaii Transfers to Minors Act is the transferror's next best option.
Samuel K.L. Suen is an attorney based in Honolulu, Hawaii specializing in estate planning, probate, conservatorship and guardianship matters.
DISCLAIMER: All content and information is provided by The Law Office of Samuel K.L. Suen, LLLC and is for general informational and discussion purposes only and does not constitute legal advice. Transmission of this information is not intended to create, and receipt does not constitute, a formation of an attorney-client relationship. The information presented at this site is believed to be accurate when made, but may not be complete, is not updated, reviewed or revised on a regular basis. No representations or warranties whatsoever, express or implied, are given as to the accuracy, applicability or validity of the information contained herein. The information may be modified or rendered incorrect by future legislative or judicial developments and may not be applicable to any individual reader's facts and circumstances. You should not act or rely on this information without consulting with a licensed attorney.
To ensure compliance with requirements imposed by the IRS, please note that any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter that is contained herein.
Copyright © 2020 Law Office of Samuel K.L. Suen, A Limited Liability Law Company. All Rights Reserved.